Political scientist and media critic

April 11, 2005

A good puzzle: Movie theater pricing

Here's a question Mike Munger offered in class recently: why do movie tickets cost the same for every movie when some are vastly more popular than others? The prices of plane tickets, hotels and other services are adjusted based on demand, so why not movies?

We came up with a couple of possible answers. First, people don't want to worry about how much a movie will cost when they show up at the theater -- call it mental transaction costs. And more importantly, movie theater owners make most of their money at the concession stand so they want to keep theaters full.

I was reminded of this discussion reading James Surowiecki's excellent The Wisdom of Crowds, which has a nice passage on movie theater pricing (Amazon Inside The Book link so you can read it yourself).

In short, he agrees -- it makes no sense. As Surowiecki writes, theater owners might not want to charge more for popular movies if higher prices prevent sellouts, and thereby lessen concession revenue. But there's absolutely no reason theaters can't charge less for less popular movies, which would make theater owners and consumers better off. Let the market rule!

Comments

Can you think of any other entertainment business that varies pricing? The only possible model is half price Broadway tickets in Times Square, and even that is very inflexible compared to the travel or hotel business.
I think the reason is that it's very difficult to predict demand. It's easy to say that flights around the holidays or tropical hotels in the winter will have high demand. But you usually don't know which movie is going to be a hit ahead of time. So that's a very risky gambit.
The other argument would be high prices the first weekend a movie opens then lower prices in subsequent weeks. but there are two problems. One is that movies rely on word of mouth. If you don't completely fill up the theaters the first weekend, nobody may come week 2. And movies move in and out of theaters very quickly these days. Getting a theater 3/4 full at $4 per ticket four weeks into the run of a movie is hardly worth it when you can take up the space with your next blockbuster.
That's my take from the heart of Hollywood.

A movie theatre cannot possibly change its prices. It would simply anger the studio. If a movie theatre decreased the studio's profit, the studio would not want their next movie playing. Imagine if a movie theatre lost the rights to play Star Wars because they charged 6 bucks for another movie instead of their regular.